September 20, 2013
The Economy Ministry has proposed that the government relax measures preventing domestic corporations from avoiding paying their fair share of taxes using dummy companies in offshore tax havens.
The ministry in its proposal for tax system revision incorporated a further decrease in the rate of the “trigger tax” rule, set by the government to determine which foreign-based subsidies of domestic companies will be subject to the anti-tax haven system.
This proposal was made in line with a request made by the Japan Business Federation (Nippon Keidanren). It goes against the international trend for stronger regulations on tax evasion and avoidance of allowing the use of shell companies in offshore tax havens.
According to the anti-tax haven rule, if a Japanese company establishes a dummy company as its subsidiary in a country where the corporate tax is lower than Japan’s trigger tax rate, Japan’s corporate tax rate will be imposed on the total profits of the dummy company and the parent company.
The trigger rate was already reduced from 25% to 20% in 2011 in response to Keidanren’s demand. A further cut in the rate will lead to fewer shell companies which will be taxed under the anti-tax haven rule.
Japanese Communist Party member of the House of Councilors Daimon Mikishi pointed out that the stance of Keidanren and the Economy Ministry conflict with the international move to tackle the issue of multinational corporations’ tax evasion schemes. He stated, “While seeking to impose a consumption tax hike on the general public, the government is moving to further lowering the trigger rate in order to benefit multinationals which use dummy companies for the purpose of tax evasion."
The ministry in its proposal for tax system revision incorporated a further decrease in the rate of the “trigger tax” rule, set by the government to determine which foreign-based subsidies of domestic companies will be subject to the anti-tax haven system.
This proposal was made in line with a request made by the Japan Business Federation (Nippon Keidanren). It goes against the international trend for stronger regulations on tax evasion and avoidance of allowing the use of shell companies in offshore tax havens.
According to the anti-tax haven rule, if a Japanese company establishes a dummy company as its subsidiary in a country where the corporate tax is lower than Japan’s trigger tax rate, Japan’s corporate tax rate will be imposed on the total profits of the dummy company and the parent company.
The trigger rate was already reduced from 25% to 20% in 2011 in response to Keidanren’s demand. A further cut in the rate will lead to fewer shell companies which will be taxed under the anti-tax haven rule.
Japanese Communist Party member of the House of Councilors Daimon Mikishi pointed out that the stance of Keidanren and the Economy Ministry conflict with the international move to tackle the issue of multinational corporations’ tax evasion schemes. He stated, “While seeking to impose a consumption tax hike on the general public, the government is moving to further lowering the trigger rate in order to benefit multinationals which use dummy companies for the purpose of tax evasion."
